Protecting homeowners in court keeps State's foreclosure rate high

Published 11:39 am, Friday, November 16, 2012

A slow legal process may be prolonging the housing crisis in Connecticut, a state where more than 5 percent of all mortgages are in foreclosure, the Mortgage Bankers Association said Thursday.

Connecticut ranked seventh in the percentage of loans in foreclosure nationally and 10th in the number of new foreclosure actions begun in the third quarter, according to the MBA’s report on delinquencies.

The report found that nationally, mortgage payment delinquencies and the percentage of loans in foreclosure both fell from a year ago, but states are seeing a mix of results in the distressed home market, especially among states that require a judicial process to take a home away from its owners.

Mike Fratantoni, MBA’s Vice President of Research and Economics, said the MBA has noticed over the last few years that states with judicial foreclosure processes tend to have a higher percentage of loans in foreclosure because those homes remain in foreclosure longer.

“It’s more the speed of the process,” he said. “From the time a borrower misses a payment it can take three years.”

Nine of the states with the highest percentage of loans in foreclosure have judicial processes for foreclosing on homes. Many states without such processes are now showing lower percentages of homes in foreclosure and nine of the states with the lowest foreclosure rates do not have such procedures.

In Arizona, which was one of the hardest hit states during the housing crisis, 2.51 percent of loans are in foreclosure, while the national average is 4.07 percent. California, too, has cleared up a lot of its foreclosures with 2.63 percent of loans in foreclosure. Even the lower numbers are problematic, the MBA said, noting that before the housing crisis, the average was around 1 percent.

The fact that so many homes are still in foreclosure and are still flowing into the market depresses prices and you can see that in the overall health of the real estate here, Deak said.

But for homeowners, it’s a different story.

“From the standpoint of a homeowner going through a temporary setback, under a longer process, maybe he can get back on his feet,” Deak said.

Connecticut has mandatory judicial mediation that takes up to eight months before a foreclosure process can move forward and it also keeps statistics on the results of that mediation.

Roberta Palmer, the State Judicial Branch’s deputy director of civil matters, said it’s not just the legal process that’s to blame for the length of time foreclosures remain active.

During mediation, in which banks and borrowers must meet with a judicial employee to attempt to work out a settlement that avoids foreclosure, the banks often say they require more information from the borrower, which delays the process as well, she said.

Since the program began in 2009, 68 percent of the mediated cases have led to people remaining in their home and 15 percent have ended with the banks taking the home without a full foreclosure process, she said. The remainder could not be settled amicably.

There are also a number of cases in which the banks have been allowed to terminate the mediation process but, “never move forward,” she said.

“It’s also a social policy question,” she said. “Is that the goal (a quick foreclosure action)? Is that in the best interests of the community? Is that what everybody wants?”

Is it important to have someone making sure the review is being done adequately and most people can save their homes?“